Mohan Sivanand's job is safe. It's a point worth making since the news broke that Reader's Digest would be filing for bankruptcy in the US, for the second time in four years. "I have got a few calls from people asking if I still have a job," laughs Sivanand, editor-in-chief of the Digest's Indian edition, which is published in partnership with the Living Media Group.

Which he certainly does. Bankruptcy is for the US company only, explains Tom Becker, spokesperson for The Reader's Digest Association, and is "the financial restructuring component of an ongoing transformation plan that started about 18 months ago". Since the bankruptcy filing in 2009, the company has sold off assets.

Now this one will help it restructure debt to the extent that it hopes to exit bankruptcy in six months with an 80% reduction in debt. Most importantly, says Becker, "all Reader's Digest publications, both in the US and abroad, will continue to be marketed and published without interruption". The company has even reversed its decision to drop to 10 editions a year, and is back to 12 now, and is also showing excellent response to its online edition.

This could almost be an inspirational story of the kind that Reader's Digest specialises in: plucky little magazine faces up to internet onslaught, almost goes under, but survives by sheer grit, faith in itself and a cautious acceptance of new technology. After all, this is the same deluge that drowned Newsweek last year, and is reportedly likely to lead to Time-Warner spinning off Time and its other magazines into a separate company whose poor fortunes will no longer drag down the group.

Small is Beautiful

But closer examination suggests some ambiguities. This is, remember, not just any other magazine we are talking about, but Reader's Digest, which with its international editions, was the largest-selling magazine in the world. A mildly sarcastic New Yorker profile in 1945 noted that British and American Bible organisations distributed 19 million volumes in 1,068 languages, while the Digest with 11 editions was bought by 11 million people a month, "but it must be remembered that the Bible has a head start".

Already Digest sales were increasing by a million copies a year then, and the 1950-60s heydays were yet to come. Social changes, of course, would make the Digest's determinedly conservative, family values seem out of date, but these values would see a comeback from the 1980s onwards.

After all, Ronald Reagan, the most transformative modern American president, said he based his ideas on a box he kept of cut-out Digest articles, and the conservative tilt that has dominated US politics since then, Democrat as much as Republican, could be said to take its individualistic, pro-capitalist, family-focussed values from the gospel laid down by DeWitt Wallace, the legendary founder of the Digest.

The Digest made Wallace the richest of media tycoons, yet also the most unlikely. Media tycoons, the New Yorker profile noted, were notoriously prone to delusions of grandeur, but "he has, if anything, delusions of smallnesss. To Wallace, most things, including himself, seem smaller than they actually are". Wallace built his empire on an inversion of regular newspaper principles. His key idea was always small — a small magazine that collected articles from other publications, simplified and condensed for people who wanted to keep up with things, but did not have the time, money or verbal resources to follow the often wordy, intellectual style of other magazines at that time.

Sleeper Hit

Wallace hoped such a magazine would provide a modest annual income of around $5,000 for him and his fiancee, Lila. Borrowing money from his family, in 1921 the two put together and mailed out thousands of copies of a prospectus for such a magazine, then married and went on their honeymoon. They returned to the best wedding gift: 1,500 subscriptions.

In February 1922, the first issue was launched, and the Wallaces were set on a trajectory that would take them to an income 100 times what they had anticipated. It seems to have been so easy. The magazines they were reprinting from initially did not even bother to ask for payment and when, having woken up to the Digest's success, they did, Wallace had enough money to pay them so well that the Digest's stipend was an important part of their revenue — which naturally made both publications and writers (who he was also careful to compensate) well inclined to the little magazine.